Huge oil profits linked to economic slowdown

WASHINGTON — Exxon Mobil reported $10.4 billion in second quarter profits July 27, the second highest quarterly profits for any publicly traded company in U.S. history. Shell profits jumped 40 percent to $7.32 billion in the second quarter while BP profits soared 30 percent to $7.3 billion. Houston-based Conoco Phillips reported $5.18 billion, 65 percent higher than the first quarter.

The enormous profit orgy touched off angry charges from environmental and consumer groups that Big Oil profiteering is driving millions of low-income families deeper in poverty and pushing the economy toward a recession.

Judy Dugan, research director of the California-based Foundation for Taxpayer and Consumer Rights, said, “These windfall profits come directly from the pockets of motorists nationwide who are struggling to pay more than $3 for a gallon of regular gasoline.”

Dugan’s group points to an analysis by JP Morgan that oil companies are reaping $19.10 for each 42 gallon barrel of crude oil they refine, up 60 percent over the same period last year. They are making record profits while deliberately refining less gasoline than a year ago.

Dugan accused Big Oil of “profiting once from the sale of crude oil at record prices and again from refining profits of 44 cents per gallon of gasoline.” She called it “pure greed and the real explanation for outrageous prices at the pump.”

She added, “It’s not Mideast unrest, shortfalls in Nigerian output or any other of the industry’s so-called reasons for gasoline prices that remain 72 cents higher than they were in January.”

If these all-time record profits continue, Big Oil’s earnings in 2006 will eclipse last year’s record $36 billion in combined profits.

The reports on oil company earnings came the same day that the U.S. Bureau of Economic Analysis reported that economic growth slowed to 2.5 percent in the second quarter from 5.6 percent in the first quarter. “Belt tightening” by consumers was blamed for the sharp slowdown.

Josh Bevins, an economist with the Washington-based Economic Policy Institute, said skyrocketing fuel costs are contributing to the slowdown. “Lots of things are dragging on the economy, but fuel prices are part of the story,” Bevins told the World. “Higher oil company profits suck purchasing power out of the economy by transferring money from household income to the oil companies. People are mostly fixed in how much fuel they use to get to work or go shopping. When the price of gasoline rises, they have to suck it up and that means less spending for other goods and services.”

The problem is aggravated by stagnating worker income, he said.

“Over the past two years, real wages adjusted for inflation have been falling,” he said. “One way to help reverse the slowdown is to increase purchasing power. It would also help if the rest of the world started increasing their imports from the U.S. That’s a wish. We don’t have much control over making that happen. But we can increase the minimum wage not only for macro-economic reasons but also as a matter of equity.”

The minimum wage has not been increased in seven years.

Shawnee Hoover, campaign director for “Exxpose Exxon,” a project initiated by U.S. Public Interest Research Group, assailed the House and Senate for lavishing new multibillion-dollar giveaways on Exxon Mobil and other oil corporations. The Senate was preparing to vote on a bill to expand oil drilling in the Gulf of Mexico as she spoke. “Members of our coalition are on the Hill right now telling Congress to stop these handouts to Big Oil. That is exactly what this offshore drilling legislation is: a handout. No matter how much we drill, it’s not going to decrease gas prices because the problem is our dependence on oil. Unless we attack the problem on the demand side, we’re not going to alleviate the pressure on the price side.”

She denounced Exxon Mobil for bankrolling “a whole entourage of right-wing think tanks” to the tune of $19 million, to inject “uncertainty in the minds of the public on the issue of global warming.” Yet more and more people see the reality of global warming, she said, and grassroots demands for curbing greenhouse emissions is rising. “Our planet cannot sustain the steadily increased burning of oil, gas and coal. Exxon Mobil, the world’s largest and most profitable oil company, has a responsibility to invest in renewable energy.”